Orange and Bouygues $11.4 bln French telecoms deal collapses

PARIS, April 1 (Reuters) - Talks between Orange
and Bouygues on a deal to create a dominant French
telecoms operator collapsed on Friday, ending an attempt to ease
a price war that has ravaged operators' margins.

The failure of the proposed 10 billion euro ($11.4 billion)
cash-and-share deal involving Bouygues Telecom is a blow to the
two companies and the French government, which was heavily
involved as it has a stake of around 23 percent in Orange.

The proposed tie-up was widely seen as a make-or-break
chance to reduce the number of telecoms groups to three from
four and prop up profits, which have been depressed since the
arrival of low-cost operator Iliad.

But a stand-off between Martin Bouygues and French Economy
Minister Emmanuel Macron about the clout the billionaire would
have gained in the former state monopoly had weighed on the
talks, sources had told Reuters earlier.

"The two main reasons explaining the failure of these talks
are execution risks and the general attitude of the French
state," a source close to the matter told Reuters.

The risks included the break-up fees involved and the
conditions under which each party involved would have been able
to withdraw from the deal, the source added.

Orange's position as the No. 1 French telecoms operator
meant that an acquisition of Bouygues Telecom would have
required selling some of its assets to rivals Iliad and
SFR, with which Orange held parallel negotiations.

This added to the complexity of getting a deal done, sources
said, as apart from Bouygues himself, the talks involved two
other influential billionaires, Iliad's founder Xavier Niel and
SFR's owner Patrick Drahi.

"It would have been a miracle if they had come to terms," a
source close to the matter said.

GOING IT ALONE

The failure to reach a deal, which was confirmed by both
parties, leaves Bouygues Telecom to go it alone.

"In a market where the possibility of consolidation is now
ruled out for the long term, Bouygues Telecom will continue its
standalone strategy," Bouygues, the construction-to-media
conglomerate said in a statement.

That could prove difficult for them, Francois Mallet, an
analyst at Kepler Cheuvreux, said.

"They will all be kicking themselves," Mallet said on BFM
Business, adding: "The state has a big responsibility in this.
The big loser is Bouygues, let's not kid ourselves."

A source at the French Economy Ministry said that the main
hurdle had been the risks involved in getting a deal across the
line, with competition concerns a factor.

"It was an extremely complex deal and there was the question
of the competition authority hanging," the source told Reuters.

The tie-up would have made Bouygues the second-biggest
shareholder of Orange after the French state, whose stake would
have been diluted.

The French Economy Ministry had asked Bouygues to accept
capping its potential stake in Orange for seven years, under a
so-called standstill clause.

It had also asked it to accept giving up for 10 years the
double-voting rights Bouygues would get as a long-term investor
in Orange, another source said.
($1 = 0.8779 euros)
(Reporting by Mathieu Rosemain, Gwenaelle Barzic, Michel Rose
and Sophie Sassard; Editing by David Evans and Alexander Smith)